FOREX-Dollar inches higher ahead of Fed minutes

* Dollar gains after comments from Fed's Lockhart, Dudley

* July meeting minutes eyed for more direction

* Pound awaits UK employment data after rising overnight (Adds Goldman Sachs comments, updates prices)

By Patrick Graham

LONDON, Aug 17 (Reuters) - The dollar extended its recovery against a basket of currencies on Wednesday after bouncing back from 7-week lows against the yen and euro on the back of hawkish comments from two Federal Reserve officials in the previous session.

Dealers said some of the bets on a weaker dollar that have dominated the market for the past week were closed after warnings from New York Fed chief William Dudley and Atlanta colleague Dennis Lockhart's that the U.S (Other OTC: UBGXF - news) . central bank could still raise interest rates in September.

That ran in contrast to an academic paper by San Francisco Fed chief John Williams which provoked dollar selling on Monday and early on Tuesday.

All eyes are now on minutes from the Fed's last meeting, due later on Wednesday, for clues on how close the bank is to tightening borrowing costs for just the second time since the 2008 financial crash.

"The communication from the Fed has just been all over the place," currency fund Millennium Global's co-head of portfolio investment, Richard Benson, said.

"The Williams argument is what is priced into markets. Dudley was pretty explicit but I don't think markets really want to believe him."

In early European trade, the dollar gained 0.2 percent against the basket of currencies used to measure its broader strength, having bounced about half a percent on Tuesday.

It (Other OTC: ITGL - news) was up 0.4 percent at 100.70 yen, having fallen as low as 99.550 yen in the previous session, its lowest since June 24 in the stormy aftermath of the Brexit referendum as investors scrambled for the perceived security of Japanese assets.

The euro lost 0.1 percent to $1.1269 having reached $1.1323 on Tuesday - its highest since June 24, the day of the referendum result.

Downbeat U.S. economic indicators have had the dollar firmly on the defensive over the past week, and markets have priced in reduced chances of a rise Fed rates this year.

But Lockhart said two hikes in 2016 was a possibility while Dudley warned the bank was edging closer to a rise and could possibly raise rates as soon as September.

"On the one hand officials are signalling another hike is imminent while also making the case for only a very modest hiking cycle overall," Goldman Sachs (NYSE: GS-PB - news) ' strategist Michael Cahill said in a note to clients.

"So even a 'live' signal from the Fed will not be the 'all-clear' for dollar bulls."

Uncertainty over Japanese monetary policy was seen supporting the yen in the medium term. The Bank of Japan, which underwhelmed the markets in July with what many investors deemed were token easing steps, will conduct a comprehensive policy review in September.

"Policy uncertainty has been weighing on Japanese bonds for a while and now the currency market seems to be taking notice as well," SMBC Nikko Securities' senior strategist, Makoto Noji, said.

Data on UK labour markets will be another focus and having got close to July's 31-year lows this week, sterling was trading almost unchanged at $1.3025.

The Australian and New Zealand dollars, both strong beneficiaries of U.S. dollar selling last week, lost 0.3 percent each to $0.7672 and $0.7260 respectively. (Additional reporting by Shinichi Saoshiro; Editing by Louise Ireland (Other OTC: IRLD - news) )